Month: February 2017

Are you thinking of buying your first home in 2017? If yes, contributing to your RRSP before the March 31 contribution deadline can help you increase your funds available for your purchase. Follow the 7 steps below so you can maximize your available funds to purchase your first home.

Step 1: Check to see if you fit all the Home Buyers’ Plan (HBP) requirements at www.cra-arc.gc.ca/hbp/. If you do continue to the next step.

Step 2: Consult with your Dominion Lending Centres Mortgage Broker to review your credit and plan ahead so you are mortgage ready. Your broker will help you figure out what you qualify for as well as help you navigate all the first-time home buyer programs such as the new BC Home Owners Mortgage and Equity Program.

Step 3: Contribute to your RRSP to top it up to $25,000 (check your contribution room to confirm the maximum you can contribute) for each buyer. Contribute to the highest income earners RRSP first to maximize your tax refund. If you don’t have the cash to contribute, then it may be beneficial to borrow funds to contribute to your RRSP but talk to your mortgage broker first to ensure your credit is in line to do so.

Step 4: Do your taxes as soon as possible so you can get your tax refund in your bank account.

Step 6: Now that your funds are in your accounts review your options with your mortgage broker and let your RRSP contributions stay in your account for 90 days for the withdrawal to qualify under the HBP.

Step 7: Begin searching for your first home. Be sure to plan the closing date to be after the minimum 90 days required for the funds to be in your RRSP and allow time for funds to transfer out of your account.

Important 2017 Dates:

March 1 – the 2016 RRSP Contribution Deadline

February 20 – the first day you can file your 2016 income taxes

May 1 – the deadline to file your taxes if you are not self-employed

April 30 – all income taxes must be paid to CRA by all tax payers

June 15 – the deadline to file if you are self-employed

Good to Knows about the Home Buyers’ Plan:

Funds withdrawn from your RRSP before they have been in your account for 90 days are not eligible under the HBP and income tax will be withheld from the withdrawal

You can use your RRSP withdrawal for anything from you down payment, paying off debts, moving costs and more as long as you’re in a contract to purchase your first home

You must repay the withdrawal amount over 15 years starting the year following your withdrawal or pay tax on 1/15th of the amount withdrawn in tax years you do not pay it back.

Your Dominion Lending Centres Mortgage Professional will help you plan to buy your first home. It’s never too early to start your mortgage application. Contact us today to get started!

If you’re looking to buy a new home, one of the most difficult things can be putting together a down payment for the mortgage. So how much do you really need to put together before you can get into the home of your dreams? Let’s take a look at some of the different options, with their various pros and cons.

0% Down – A Thing of the Past?

If you’ve been in the housing market before, you might remember a time when banks offered extremely inexpensive mortgage options, including the “zero down payment” mortgage. Although these types of mortgages were extremely attractive for obvious reasons, you may remember a something called the Great Recession of 2008. The unfortunate downside to these mortgages was that far too many unqualified buyers were opting into mortgages they could not realistically afford. When these people defaulted en masse, it led, in part, to the collapse of the housing market. As a result, Canadian legislators moved to implement safety measures preventing such high-risk mortgages from being so freely available.

As a result, if you’re looking to buy a home through a federally-regulated lender, you will be required to make a minimum 5% down payment. On the other hand, most major credit unions do still offer zero down mortgages, primarily aimed at lower income families getting into the housing market for the first time. The benefits of this are obvious, requiring less money up front, but what are the downsides? The biggest drawback to this kind of mortgage is the high interest rate. Most of these plans carry an interest rate up to 150% higher than mortgages with 20% or more down. This interest can add up very quickly, in addition to mandatory insurance required for any mortgage with below 20% down. The cost over time of both these high interest rates and insurance can become daunting expenditures, dramatically reducing the attractiveness of these mortgages.

Mid-Range Down Payments – 20% Down

In the Canadian housing market, 20% down is a bit of a milestone. If you put together less than 20% for a down payment, you will be required to also purchase default insurance, a pricy addition your regular mortgage payments. However, if you have 20% or more, you will be exempt from this burden. Common wisdom dictates that, in the long run, you will save a substantial sum of money if you can put together at least 20% for a down payment, as it will reduce your monthly payments substantially.

If you fall somewhere between 0% and 20% in terms of your ability to put together a down payment, you might want to look into the climate of your housing market. For example, when moving into a very popular housing market, where prices are increasing at a fast pace, it could be more expensive to wait until you have a larger down payment, as the prices will increase at a rate which negates the benefits you’d receive by not having to pay insurance. In a mellower housing market, you may be better off saving up and avoiding the higher interest and insurance premiums of a lower down payment mortgage, since the cost of housing will not be likely to climb so quickly.

Whatever your specific situation, it helps to have professionals look into it with you and crunch the numbers to make sure that you’re making the best decision for you!

35% Down Payment – The Ideal Mortgage?

Further conventional wisdom dictates that if a 20% down payment is good, 35% must be even better. The importance of 20% is, of course, that the CMHC insurance is no longer required, but what if you’re situated so that you can afford an even larger down payment? Simply put, the more money you’re able to commit up front to a home, the less expensive it will be in the long run. Not only will you have less to pay off, but you will qualify for even more appealing interest rates. With lower interest rates and no insurance to worry about, the overall cost of your home will be substantially lower and you will be finished paying off your home far more quickly than if you were to put down the minimum.

Of course, not everyone is so situated that they can afford to put down 20-35% on a home. It’s important to note that, although there are benefits, a princely down payment is not required to get into the housing market. If you are a first-time buyer or belong to the low-to-mid income class, there are options available for you as well.

What’s truly important is to be able to take a frank, honest look at your finances, be clear about what you can and can’t afford, get professional assistance when needed, and do the math on what you’re getting yourself into. Buying a home should be an exciting experience, and it can be, provided you put in the necessary footwork! The mortgage professionals at Dominion Lending Centres are happy to help.

When it comes time to get your mortgage, or perhaps look at investing in an investment property, income qualifying is one of the first steps you will have to take. This first step though can also be the most challenging. Let’s walk through the steps you should take:

1. What is your Employment?

Are you employed by a company and receive a consistent paycheck with a T4 slip? OR

Are you self-employed—a sole proprietor, incorporation, or a limited company (same as incorporation)?

If you are employed, you may need the following documents to provide to your broker/lender:

2 most current years T4’s

2 most current Notices of Assessment

Most recent pay stub

Letter of employment

Up to 90 days of bank history to show you have the down payment and closing cost (usually 1.5%)

If you are a proprietorship, you may need the following documents to provide to your broker/lender:

T1 Generals for the most recent last 2 years – all pages

2 most current Notices of Assessment (proof that no personal taxes are owing)

Verification of Business for Self

Business Licences

Registration of your proprietorship

Last 2 years GST/HST remittance forms

Etc

Up to 90 days of bank history to show you have the down payment and closing costs necessary

If you are incorporate/a corporation, you may need the following documents to provide to your broker/lender:

2 most current Notices of Assessment-You need to show you HAVE AN INCOME!

Up to 90 days of bank history to show you have the down payment and closing costs

Verification of Business for Self:

Last 2 years business licences

Articles of incorporation

Last 2 years GST/HST remittance forms

Last 2 years of Financial Statements

Business Registration Form

Etc

2. Work with a good Accountant or use Stated Income

Make sure you are working with a good accountant who knows what you plan to accomplish in the future and sets up your business accordingly so that you can show at least an average income on your notice of assessment (NOA).

You can also use “Stated Income” which is simply stating your income to be REASONABLE and to reflect the time you have been working within that industry instead of what you are personally reporting to Revenue Canada and paying taxes on.

For stated income be aware that you can only use this on refinancing, or purchasing primary residence, purchase plus improvements of primary residence, Second Homes, and investment properties.

3. Insurance considerations

For stated incomes, there are insurance guidelines that you need to be aware of.

Genworth and Canada Guaranty:

GDS (Gross Debt Service) and TDS (Total Debt Service) Ratio:

Credit Score of >680 and GDS/TDS ratios of 39/44

Credit score of <680 and GDS/TDS ratios of 35/42

Also, make sure that there are no personal taxes owing

Finally you will need to ensure that you are following the 2-2-2 rule. Check out our article for more information on this.

Plese note that CMHC does not have a STATED INCOME program.

Insurers give the following rate premiums for Business For Self (BFS):

As always we are here at Dominion Lending Centres to help. Contact us today!

Recently a video appeared on Linkedin and a few other places singing the praises of porting your mortgage and making it seem like a walk in the park. If you have ever done one, then you would know that it is anything but that scenario.

Porting is not much different than qualifying for a new mortgage, the video talks about the client moving to a new town and just porting their mortgage along with them. Truth is if that you are moving to a new town and a new job you may be on probation and not qualify for the mortgage. The lenders also have to approve the new property as well so a lot more factors that need to be considered.

If you are porting the mortgage and don’t need any more money as in the new house is the same value, then there isn’t much issue. What if the new home is more money and you need to increase the mortgage then the lender has an opportunity to blend the two rates and your mortgage payment could go up. If you need to reduce the mortgage amount, then you may also face a penalty on the amount reduced.

Another factor not talked about is that you still need a down payment for the new home it’s not just going to be a simple move over and continue on with your mortgage. The other thing that happens is that your lender will usually take the full penalty out of the sales proceeds and refund it to you after the sale has completed. In some cases, this process could take up to a month meaning you need to cover the short fall at closing and wait for it to come back to you.

And last but not least how long of a period do you have to port your mortgage, did you know they range from 1 day to 120 day’s maximums? In the case of one day that mean the lawyer has to close both sales in that time frame.

Overall its prudent to get professional advice from your Dominion Lending Centres mortgage professional.

With an increase in concern about fraud, lending institutions are getting strict on documentation for mortgage approval.

As part of the mortgage approval process, your mortgage broker will ask for documents to show proof of your income, down payment and possibly other items such as proof of permanent residency and other identification. Since most of that paperwork is in your home in hard copy many people simply take a photo on their phone and send it over by email. As lenders are getting strict on documentation they are not accepting photograph copies and some lenders are not accepting a JPEG file or other formats. They will want a PDF copy of the document.

So I suggest to clients –keep it simple—and make a digital file of all of your important documents stored in a safe — place such as an external hard drive or offsite server location.

1. Your passport or other important forms of identification

2. PDF copies of your T1 General tax returns and Notice of Assessment from CRA.

3. If you need to make a copy of a bank statement get it scanned and copied to a PDF

DO NOT take a photo of your documents and keep them on your phone OR consider those as good forms for lender financing purposes.

December 15th, the B.C. Provincial Government shared that it will begin offering financial assistance to B.C. first-time home buyers in regards to their down payment. They estimate that 42,000 new first-time home buyers will take advantage of this program over the next three years.

What the B.C. Government Will Provide:

– A matched loan only to be used as funds for making a down payment on an eligible home

– Maximum available funds will be $37,500 or 5% of a home’s purchase price

-Maximum 25 years to repay

– 5 years of no required payments (includes no principal payments and no interest payments)

– This loan will be registered as a second mortgage on the newly purchased home

When This Program Begins:

– January 16th, 2017 applications will be accepted and this program expires March 31, 2020

To Qualify for This Program:

– Must reside in the home – Must be a First-Time Home Buyer (click here to see those qualifications)

– Property must remain principal residence for 5 years

– Property must cost less than $750,000 and not be used as a recreational or rental property

– Have resided in BC for at least 1 year

– Have a combined gross income of less than $150,000

– Have saved half the minimum down payment (2.5% of property’s purchase price)

– Have been pre-approved for a 1st mortgage before applying

Privileges of This Program:

– No prepayment fees (make lump sum payments or pay entire debt early at any time)

– No interest will begin accumulating until after the first 5 years have expired

Example:

Without this program, if you wanted to buy a $500,000 home for example, you would need a minimum down payment of $25,000 (5%) plus 1.5% for closing costs. With this program, the government will match a first-time home buyer’s down payment, up to 5% of the property’s value. So your $25,000 down payment can now be $12,500 because the government will lend you the remaining $12,500 (you still need 1.5% for closing costs).

If you originally wanted to make a 20% down payment and avoid insurance premiums, you can now do this with 15% of your own money down as the government will lend you the remaining 5%.

It is unclear the significance this program will have on housing prices and how it will affect demand here in BC- only time will tell us that. For right now though, future first-time home buyers can begin to feel very optimistic as the BC government has opened a door of opportunities for them, 3 months after CMHC’s news from October 2016 where they announced changes to qualifying requirements- affecting the majority of future first-time home buyers.

Below is a chart showing the steps a first-time home buyer must complete in order to successfully use this program in their future purchase. In order to become pre-approved with a lender, please contact your Dominion Lending Centres mortgage professional so we can begin that process (which is free).

Each mortgage has a set term which can vary from 1-10 years. Just before the end of your term you will receive an offer from your current lender and you have 3 options:

Sign and send back as is.

Check the market to make sure you are getting the best rate and renegotiate with your current lender

Move the mortgage to a new lender.

Option 1 is not a very good idea in my opinion. The onus is on you to make sure you are being offered the best rate. Banks are a business like any other and they are seeking to make the highest profits they are able as to keep their shareholders happy. There is nothing wrong with that. That does mean however that you as a savvy consumer should take a few minutes to ensure you are being offered the best possible rate you can get.

Think of it as the sticker price on a vehicle at a dealership. The rate you are being offered is a starting point for discussion, not the final price. Let’s look at an example:

Mortgage of $300,000 with an amortization of 25 years.

Your offer is for 3.19% for a 5 year fixed = $1449.14/month and you will owe $257,353.34 at the end of the term

Best rate is 2.59% for a 5 year fixed = $1357.38/month and you will owe $254,372.59 at the end of the term

You would pay $91.76 less each month or $5505.60 over all 60 months and still owe $2,980.75 less.

So you need to ask yourself if you are OK handing that money over to the mortgage provider or if you would prefer to keep it yourself and I am pretty sure I know what your answer will be.

So here are the steps I mentioned to save yourself all that money.

Receive the offer from the mortgage lender and actually look at ASAP so that you have enough time to make an informed decision.

Research via the internet and phone calls to find out what the best rate even is.

Phone your current lender and negotiate! OK, you are going to have to get downright assertive and that may be uncomfortable but when you compare your comfort to the thousands of dollars you could save, you will see that it’s worth it.

If said lender will not offer you the rate then move the mortgage. You will have to provide paperwork and complete the application but if you keep in mind the example from above then I repeat, it’s worth it.

Take a look at your budget and see if you can increase the payments to decrease the mortgage and save yourself even more as the overall interest costs decrease.

Keep in mind when that renewal notice arrives that you literally have the power to save yourself money and you are not obligated to accept the first offer which is presented to you and I truly hope you do not. If you need some more information, please do not hesitate to contact your Dominion Lending Centres mortgage professional.

The Home Equity Line of Credit (HELOC) lets you split up your mortgage debt and borrow against your equity at low rates.

The unique feature of this mortgage product is that you can slice the pie (the mortgage balance) into various segments. All of it is registered against the subject property title as just one charge. This gives you the ability to diversify your risk in the marketplace.

If you had a $480,000 outstanding mortgage against a property (with 20% equity or a value of $600,000) you could divide it up into different segments. For example, you might place $200,000 in a variable-rate mortgage, $200,000 as fixed term and $80,000 line of credit.

Spreading the risk across different markets helps you plan for the future, as there are different governing bodies controlling different aspects of the marketplace.

Variable-rate mortgages and lines of credit (LOCs) are based on the prime lending rate and controlled by the Bank of Canada. Fixed rates are based on bond yields and dictated by the lenders themselves. Most other lenders follow the trends of the major chartered banks in Canada.

There are two types of line of credit in Canada: secured (registered against real estate) and unsecured (guaranteed by one’s promise to repay). I can only assist with secured LOCs. The secured LOC means less risk for the lender as it is based on the market value of the home to a maximum of 80% loan-to-value. Therefor the rate is lower and the borrowing ceiling is higher. On secured LOCs the rate is Prime (2.70%) +0.50% which is 3.20%. This means that if you had a primary residence with a market value of $500,000 free and clear of any other type of mortgage then you could secure a $400,000 HELOC against it at 3.20%.

Unsecured LOC rates vary depending on lender, but a safe starting range is 5-7%. And on unsecured LOCs, lenders tend to forward much less than secured LOCs; they range from $5,000-$40,000.

Here is an example of a client I recently assisted. We were able to obtain a HELOC mortgage product from a Canadian charter bank.

Current residence (located in the Greater Vancouver area) appraised at $1.15MM.

Current mortgage balance, $445,000.
Maximum loan limit, $920,000 (80% of market value: 1,150,000 x 80%).
They opted to secure the current outstanding balance of $445,000 into a variable-rate mortgage at Prime-0.45% or 2.25%.
The additional equity of $475,000 was set up for access across 3 different LOCs; one at $159,000 and two at $158,000.
These clients now have access to $475,000 for any future needs: renos, emergency, investment opportunities, post-secondary education for their children.

But while a HELOC allows for product diversification and long-term planning, it is not for everyone. It can be a bad idea if it’s just used as access to easy cash. One needs to possess high self-discipline, as the funds are extremely accessible. Using the home as a piggybank can backfire disastrously.

A HELOC is also not available to all homeowners. There must be enough equity in the home before a lender will consider it.

You’ve been offered an amazing rate and you just can’t believe how much you will save. You’re super excited and getting ready to go sign off on the papers when you randomly run into a mortgage broker and mention the deal you scored. The broker says to you that’s an awesome rate, any idea what the penalty calculation is if you need to refinance in the future?. Wait what…isn’t it the same as the last mortgage I had?

Maybe but maybe not. There are a lot of new mortgage products available on the market that offer lower rates while giving up other benefits. These mortgage options may have higher penalties, lower prepayment privileges or even worse they could have a bone fide sale clause.

I don’t blame a consumer for always thinking rate first. The industry as a whole is guilty of shoving rates in our face anytime they possibly can. It’s the easiest part of a mortgage to compare and easiest to advertise. But definitely not the most important part.

Being aware of all the terms and conditions is the key to finding your best mortgage option. You should be aware that there are mortgages that may come with one or more of the following terms:

* Sales only clause, meaning you may not be able to refinance your mortgage until your term is up

* A higher set pay out penalty. Meaning you may have to pay more than the standard 3 months interest or Interest Rate Differential penalty.

* Smaller prepayment options

* and more!

Always ask these 5 Questions when offered a mortgage:

1. How is the pay out penalty calculated if I break the mortgage?

2. Can I refinance with another lender before my term is up?

3. Is the mortgage registered as a Standard or Collateral charge on my land title?

4. What are my prepayment privileges?

5. Is the mortgage portable and assumable?

Bottom line is that knowing all the fine print is essential in making an educated mortgage decision. We never know what is going to happen in life and saving a little bit on your mortgage rate may cost you more in the long run.

Looking to increase your homes property value? Here are five of the best renovations you can do to your home to increase property value. These five renovations can sometimes have a return on investment 5-6x what they cost.

# 5 Flooring

Flooring is one of the most important aspects of your house. You will see an immediate rise in property valuation with the installation of hardwood floors. Existing hardwood floors that you can refinish are ideal as they are less costly to restore and in higher demand than new flooring materials. For the bathroom, tile will always be in demand and retain value exceptionally well.

# 4 Fixtures

Kitchens often look tired and dated, in large part due to old fixtures. Replacing or updating cabinet hardware, light fixtures, countertops and faucets will result in an immediate increase in your home’s value. This small, but effective upgrade will also revitalize the entire home. Pot lights are in high demand in open concept style homes.

# 3 Bathroom

The bathroom is the second most important room in the home in terms of valuation. If you can add a three-piece bathroom to a home with only one full bathroom, you will see a dramatic rise in the market value of your home. While you should never compromise bedroom space for a bathroom, try sneaking one in dead space in the home. Scott managed to fit in a 3-piece bathroom under a staircase – the width of the room measured just 44 inches. As an added tip, use glass for the shower to make the bathroom feel more spacious.

#2 Kitchen

Kitchens are the single most important room in the home relating to valuation. The kitchen can make a significant difference in the value of your home. As such, it is crucial that you invest in having a modern, fresh and desirable kitchen. Modern cabinetry, under cabinet lighting and new appliances will all significantly increase the value of your home on the market. To save on cost without compromising construction and desirability, look at options like Ikea cabinets as opposed to custom cabinetry.

#1 An Income Suite

No surprise, but the single biggest way to increase the value of your home is to build an income suite within the property. Whether this is converting your basement into a rental, or another floor in the home, an income property will increase your home’s worth. The main reason for this is that it covers a portion, or sometimes all of your mortgage payments, and results in your home being cash flow positive – which creates real wealth that can supplement your income.

Speak with any Dominion Lending Centres mortgage professional about how Genworth Canada can help qualified home buyers make their new home just right for them, with tailored improvements, immediately after taking possession of the purchased property.

Courtesy of Marc Shendale, Genworth Canada – Vice President Business Development